SYRACUSE UNIVERSITY
The Maxwell School of Citizenship and Public Affairs
PPA
735/ECN 635
State and Local Government Finance
Professor Yinger
Case: Contracting for Prisons in Texas(1)
The Question
It is the spring of
1989 and Texas is at the center of a national debate over
whether private companies should be allowed to run prisons for
profit. The Texas Department of Corrections is considering the
use of four private 500-bed, minimum-security prisons. Although
the prisoners would be sentenced by the State of Texas, their
guards would wear the uniform of the Corrections Corporation of
America, headquartered in Nashville, or of Wackenhut Services,
Inc.
Texas would not be the first state to use private prisons. There
is already one such prison in operation, near Louisville,
Kentucky, and another is being built near Santa Fe to house all
the female prisoners in New Mexico. In addition, more than a
dozen county jails around the country are owned and operated by
companies that receive a daily fee for each prisoner.
Background
Opponents say that
private prisons put cost reductions above the responsibility of
a government for its prisoners. "The responsibility for the
prison system is being given to the people who do not
necessarily have the best interest of the prisoners at heart,"
said Edward I. Korten of the National Prison Project of the
American Civil Liberties Union. The government may not "always
have the best interest of prisoners at heart, but at least
they're accountable to the people," he said, adding, "Who holds
these companies accountable?"
But proponents of private prisons say such philosophical
objections are a luxury that the overcrowded system can not
afford. "I'm an old state bureaucrat," said Bob Olsen, the
internal auditor for the Texas Department of Corrections. "I
don't have any philosophies. If they can do it cheaper than the
state can, more power to them."
There was a time, in colonial America, when all prisons were
privately run. But conditions were Draconian and the prisons
were put under Government control after the Revolutionary War.
In recent years, private groups have won contracts to run
half-way houses. Now those companies are building county jails
and state prisons at their own expense under contracts that
provide for daily fees for each prisoner sent by the state.
States are thus spared the trouble and political problems
inherent in asking voters for money to build prisons.
Governments are turning to these private groups because they
cannot handle the problem themselves. With drug arrests swelling
inmate populations, 43 states are under court order to correct
overcrowding in their prisons. Lack of prison space has been
cited as a contributor to the crime wave in Washington, D.C.,
which is also considering the use of private prisons. State and
local corrections officials have turned to a variety of unusual
approaches, including the use of two British-built troop barges
to house prisoners in New York City along with a plan to build
another floating jail.
The Texas Department of Corrections generally has 6,000 to
10,000 more inmates than it has beds. As a result, Mr. Olsen
said, prisoners who have been sentenced to state prison are kept
temporarily in county jails and judges are releasing prisoners
at the earliest legal date.
Similar problems caused Kentucky to open the country's first
post-Revolution private prison, in the small town of St. Mary's,
three years ago. Nearly 450 prisoners are housed there, and
United States Corrections Corporation of Louisville is paid
$26.35 a day for each prisoner it houses there.
Contract Requirements
In Kentucky, the
company is not required by its contract to prove that its costs
are lower than the state's in order to keep prisoners, said
Robert B. McCloud, vice president of United States Corrections.
"We're a little less than they are," he said. "But even if we're
not lower, they're still getting a good deal because we own the
facility and they're using it at no cost."
The company is required to provide all the services mandated in
a state-run minimum-security prison, including rehabilitation,
vocational and counseling programs, and recreation areas.
Moreover, the company cannot hire out the prisoners and keep the
money, have them manufacture anything for sale on prison
grounds, or put them to work enhancing the prison site or even
doing heavy maintenance.
The rules would be
similar in Texas, except that the private company would have to
prove that its cost is at least 10 percent lower than the
state's. The Department of Corrections estimates its own cost at
$38.00 a day for each prisoner. This figure, which is an average
over all current prisons in the state, includes wages and
benefits for prison workers plus maintenance and operating
expenses for prison facilities. Thus Texas would pay no more
than $34.20 per prisoner per day to the two companies bidding on
prisons, Corrections Corporation of America and Wackenhut
Services, Inc. "Any price less than $34 would be a bargain,"
said Mr. Olsen.
Sources of Cost Savings
Officials of the
private correction companies say most of their savings comes
from the fact that they are free of many government rules. "The
private sector can do lots of things without going through the
procurement process," Mr. McCloud said. "When we buy something
we pay cash for it. You're going to get a better deal if the
vendor doesn't have to wait six months for payment."
In addition, Mr. McCloud said his company pays its guards
slightly less than the State of Kentucky pays its prison guards,
although they are trained at the same state-run school. The
state gives the private guards the same police powers as state
corrections officers.
Peggy Walker, a spokeswoman for the Corrections Corporation of
America, said her company would pay wages comparable to those of
the Texas Corrections Department. Because the company would
build the prisons itself, she said, they would be less costly to
operate than existing prisons, which were not necessarily built
with economy in mind. For instance, the new prisons would be
designed in a V-shape so guards can see down two main hallways
at once, thus requiring fewer guards.
Like many businesses, the companies are counting on volume. The
Corrections Corporation of America. which now operates 11
institutions in 4 states, most of them jails and immigration
detention centers, saw a profit for the first time in four years
for the last quarter of 1988. The company lost $100,000 last
year, as against $1.9 million the year before. "We seem to have
reached the critical mass of beds to be profitable," Ms. Walker
said. "Our fees now cover what it costs us to run the prisons as
well as the principal and interest on our construction loans."
Critics of contracting out for prisons recognize that some
current prisons are inefficient but also point out that many of
the so-called advantages of private provision could be
incorporated into new public prisons. "We shouldn't be comparing
the cost of public prisons built in the 1940s and 1950s with the
cost of private prisons that have all the latest technological
wrinkles," said Mr. Korten.
Prisoners' Rights
The focus on costs and
profits concerns some experts on prisoners' rights, who have
spent years charging state and local governments with prisoner
abuse and now find themselves arguing that those governments are
best able to regulate prisons.
"You'll have a private contractor who'll make a lot of promises
to the state about providing constitutional prison conditions,"
said Donna Brophy, a San Francisco lawyer whose suit against the
Texas Corrections Department led to a court order to reduce
overcrowding. "Once the state thinks it's all taken care of,"
she said, "God knows what will happen to the prisoners."
Other objections are more philosophical, like the one raised by
Ira Robbins, author of the book The Legal Dimensions of
Private Incarceration, published in October 1988 by the
American Bar Association. "What are the core purposes of
government?" Mr. Robbins said. "Foreign affairs and domestic
defense." I count corrections and detention as among the latter
and I don't think our government should contract out its core
reason for being."
The Decision
You are the Director of the Texas Office of Management and Budget and have been asked by the Governor to evaluate the proposal to use private prisons. The Governor is particularly confused about the issue of costs. He wants you to tell him whether the available estimates of the costs of public and private prisons are comparable. If they are, he wants to know whether the 10 percent rule makes sense. If they are not, he wants to know whether it is possible to design bidding rules or contracting provisions that are likely to make private prisons cheaper than comparable public prisons. Finally, of course, the Governor wants you to make a recommendation concerning the use of private prisons by the State of Texas. You have been asked to present your analysis and recommendations at a public hearing on the subject.
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1. This case was written by Professor John Yinger for classroom use. It draws heavily on Lisa Belkin, "Rise of Private Prisons: How Much of a Bargain?", The New York Times, Monday March 27, 1989.